The Andhra Pradesh Crisis: Clients' Perspective

Understanding credit risk associated with lending to the poor in India

This note presents perspectives of MFI clients on the Andhra Pradesh (AP) crisis. The perspectives were gathered by MicroSave at various points of time across AP after the October 2010 crisis.

Prior to the crisis, clients appreciated the products and delivery systems of MFIs. Self-help group members with access to loans through the bank linkage program also considered MFIs an attractive option as they provided larger amounts in a short time span. After the AP State Government issued the Microfinance Ordinance in October 2010, clients stopped loan repayments. The note identifies three categories of clients based on their reactions to the crisis:

  • Those willing to pay, but unable to do so since loan officers stopped visiting their areas;
  • Those who want a government clarification before making payment;
  • Those utilizing the opportunity to default on repayments.

Media coverage of the crisis has affected repayment rates and clients'’ faith in MFIs. The crisis has adversely affected credit discipline of clients. This has serious implications for credit risk associated with lending to the poor.

About this Publication

By Ballem, A., Devi, T. & Veena Yamini, A.